Election uncertainty cited as IMF cuts SA’s growth forecast

The International Monetary Fund (IMF) has warned that South Africa’s prospects remain uncertain in the lead up to the 2019 elections‚ and has slashed the country’s growth forecast almost in half.

In its October World Economic Outlook‚ it revised down 2018’s forecast to 0.8% from 1.5%. The growth forecast for 2019 was also revised down from 1.7% to 1.4%.

Ahead of the medium-term budget policy statement at the end of October‚ the IMF said: “A gradual and growth-friendly fiscal consolidation will be needed to strengthen public finances‚ focusing on wage savings and complemented by measures to boost efficiency of other current spending‚ including through better targeting of education subsidies and the rationalisation of transfers to public entities.”

The IMF also welcomed recent reforms such as measures to tackle corruption and strengthen procurement‚ and the intention to eliminate wasteful expenditure.

“However‚ further reforms are needed to increase policy certainty‚ improve the efficiency of state-owned enterprises‚ enhance flexibility in the labour market‚ improve basic education‚ and align training with business needs‚” it said.

This comes after the World Bank revised down its growth forecast last week in line with the Reserve Bank.

While the fund commended SA on its range of buffers‚ including a floating exchange rate‚ deep financial markets‚ contained foreign currency exposures and long debt maturities‚ it warned that the country remains vulnerable because of large gross external financing needs.

“Deepening reforms to improve governance and the business environment would help reduce such vulnerabilities‚” it said.

The IMF also revised down global growth from 3.9% to 3.7%.

“The steady expansion under way since mid-2016 continues‚ with global growth for 2018/19 projected to remain at its 2017 level. At the same time‚ however‚ the expansion has become less balanced and may have peaked in some major economies. Downside risks to global growth have risen in the past six months and the potential for upside surprises has receded‚” it said.

The fund cited escalating trade tensions and the potential shift away from a multilateral‚ rules-based trading system as threats to the global outlook.